How FREED is Emerging as a Category Creator in Debt Relief and Helping People Struggling with Debt Become Debt-Free

What does FREED do?

FREED is India's first debt relief platform to help financially distressed or overleveraged consumers. We operate on a pull model, where borrowers seeking relief approach us. After evaluating their financial situation, we offer tailored solutions.

We consolidate debt for those struggling but current on payments, a single loan to replace high-interest debts, reducing monthly payments by 30-35%. For those already delinquent, we offer debt resolution, helping them budget, save, and negotiate with creditors to settle debts.

Our goal is to make them debt-free while fostering saving habits, enabling them to avoid future debt.

Do you partner with some banks or NBFCs to consolidate their loans?

We don't have a partnership for consolidation but work with lending partners who extend loans. The goal is to help consumers burdened by high-cost loans consolidate them into one loan, lowering their Financial Obligation to Income Ratio (FOIR). We’re a borrower-centric, lender-agnostic platform, working with various lenders, from large to small NBFCs, to resolve thousands of accounts.

How does FREED make money in this process?

FREED is a borrower-centric platform. Unlike lender-centric players, we don't charge lenders. Instead, we charge borrowers a success fee only after we’ve delivered a settlement. Our model fills a gap in India’s post-lending landscape, ensuring a win-win for all.

So it happens after the consolidation and their EMIs have been reduced?

Consolidation involves providing a new loan only after it’s completed. Resolution, separate from consolidation, involves settling debts where the borrower doesn’t need to pay in full and the lender agrees to a waiver due to financial hardship. We charge a fee once the consumer's debt has been progressively resolved.

Is this charged as an out-of-pocket fee from these customers?

The fee is typically 10-15% of the borrower's debt to the platform. We understand these consumers are vulnerable, low on trust, and have experienced financial mismanagement. They’re willing to pay once they see relief or savings. In India, customers are value-conscious; if you deliver that value, they’ll pay.

What is the ticket size that you typically start with?

We start with a minimum debt of ₹50,000 on the platform. The average debt per borrower has been increasing steadily over the last two years, from ₹5.1 lakhs when we started to ₹5.7 lakhs as of the last quarter.

How does the unit economics work?

If the AUM is ₹100, we aim to generate ₹15 in revenue. Due to the high demand and low competition, the relatively low customer acquisition cost (CAC) in India isn’t a major concern for us. The key driver for revenue is the completion rate, which affects our take rate or yield on the AUM. With a 100% completion rate, the revenue would be ₹15 for every ₹100 in AUM. Currently, with a 30-35% completion rate, the revenue is proportional to that.

Do you have individual advisors advising all of these clients?

We rely heavily on technology. While in the U.S., financial services typically involve advisors and counsellors, in India, most borrowers are already comfortable with digital platforms where they take loans. We acquire and service clients digitally, but human interaction is still provided for complex issues. Routine tasks like program updates and payments are managed through an online dashboard.

What made you return to India since you ran a US debt platform? Did you see an opportunity here because we know many Indians are leaving for the US, UK, and Australia?

The decision to return to India was personal, despite owning two large debt relief platforms in the US and managing over $2 billion in debt. While I had a back-end office in Gurgaon, I didn’t think the Indian market was ready for debt relief services in 2017-2019. However, the COVID-19 pandemic offered a chance for introspection. I saw a rising demand for debt relief services in India due to increasing debt levels, consumption, and credit accessibility coupled with low financial literacy. This, combined with aspirational spending, indicated a huge opportunity, and I believe we’re on the brink of significant growth in this sector.

Can you compare the debt advisory market in the US with that of India as of date?

You can’t compare them directly because you're looking at a very established industry in the US versus a nascent one in India. The US debt relief industry began around 2002-2003 and became regulated in 2010. One key regulation was that platforms could only charge fees after performing the service, not upfront. By 2024, it had grown into a $50 billion annual market, representing about 3% of the US's $1.7 trillion unsecured debt.

In contrast, according to the RBI's report, India’s unsecured loan market- like personal loans, credit cards, and consumer durable loans, totals about $220 billion. With an estimated 5-6% stress on these loans, there’s about $10 billion in potentially stressed assets. Over the last five years, Indian banks have written off about ₹10 lakh crore in bad debt, with around 30% unsecured. Combining all these numbers, India's potential bad debt market is around $35 billion.

So, while India’s market size is significant, the US market is 3-4 times larger, with a target market of around $200 billion.

Do you face any regulatory challenges in running a debt advisory platform in India?

Yes, there are challenges, especially since the debt relief industry in India is still in its early stages. Unlike in established industries with clear regulations, the space is evolving, and we must be proactive in self-regulating. Drawing from our experience with the US debt relief industry, we’ve focused on creating maximum value for the borrower, always keeping their best interests at heart to ensure we don’t worsen their situation.

While regulations for this sector are still developing, we are engaging with lenders, lawmakers, and regulators to advocate for structured debt relief. We’ve received positive feedback from stakeholders and are pushing for formal regulation in the space, though the timeline remains uncertain.

Do you face any challenges regarding the regulatory regime while consolidating your clients' debt?

Not really. Consolidation, in our case, is about closing high-cost loans and giving the borrower one single loan to reduce their monthly obligation. There is no regulation directly preventing this because the borrower can choose to close their credit lines at any time. The process is similar to a balance transfer, with funds held in escrow to ensure the closure of loans without any additional cash being provided to the borrower.

The settlement part, where the borrower saves funds in a trust or escrow account, doesn’t face regulatory hurdles. These types of waivers and restructuring are common in business loans but haven’t been available to retail borrowers. We’re aiming to bring this relief to individual borrowers.

If anyone has to enter this space in India today, would you advise them to do so, and what would be your advice to start this business?

Entering the debt relief space in India can be a great opportunity, but it requires a deep understanding of borrowers’ pain points. Here’s what I’d advise:

• Empathy is key: Understand that each case is unique. Tailoring solutions to individual needs is essential.
• Regulatory readiness: Since the industry is still developing, you must navigate an evolving regulatory landscape.
• Long-term commitment: This is not a short-term venture. The demand for debt relief will continue to grow, so you need to approach it with a long-term perspective.